If your business is getting a little too much for you to handle on your own, you may need to make the decision on whether or not to hire a full time staff member or an independent contractor.
Before making your decision make sure you understand the differences between the two. Here are just a few items to consider:
An employee works in your business and is part of your business. Characteristics of an employee include the following.
- Control over work: your business has the right to direct the way in which the worker performs their work.
- Ability to sub-contract/delegate: the worker cannot sub-contract/delegate the work – they cannot pay someone else to do the work.
- Basis of payment: the worker is paid for the time worked and the employer is responsible for payroll taxes and workers comp.
- Equipment, tools and other assets: your business provides all or most of the equipment, tools and other assets required to complete the work, or the worker provides all or most of the equipment, tools and other assets required to complete the work, but your business provides them with an allowance or reimburses them for the cost of the equipment, tools and other assets.
A contractor is running their own business and provides services to your business. Characteristics of a contractor include the following.
- Control over work: the worker has freedom in the way the work is done subject to the specific terms in any contract or agreement.
- Ability to sub-contract/delegate: the worker is free to sub-contract/delegate the work – they can pay someone else to do the work.
- Basis of payment: the worker is paid for a result achieved based on the quote they provided. No taxes are withheld by the employer.
- Equipment, tools and other assets: the worker provides all or most of the equipment, tools and other assets required to complete the work. The worker does not receive an allowance or reimbursement for the cost of this equipment, tools and other assets.
Whatever decision your business decides to make, be sure to understand the laws and regulations before you hire. Mis-classifications of an individual as an independent contractor may have a number of costly legal consequences.